Wednesday, October 10, 2012

Weighing The Change In Brooklyn: The True Cost Of “Barclays” Center Glitter, The Cost Of “Barclays” Center Tickets

The "Barclays" Center advertising oculus showing Barbra Streisand, one of the singers who has not answered an open letter from the community questioning why she is performing at the Ratner/Prokhorov arena

With the opening of the Ratner/Prokhorov “Barclays” Center in Brooklyn last week much is being written about what has been lost and what we might think we have gained.

I believe it was Brian Lehrer who summed up for his listeners the October 2nd New York Magazine cover story— “Brooklyn Is Finished.” (followed by a small subtitle) “Or has it only just begun.” — as being sort of about how Brooklyn may have become a victim of its own success.

Brian Lehrer or one of his staff may have speed-read the Mark Jacobson New York Magazine story referred to (its relative incoherence challenges a careful read), but I don’t think it can be cited for the proposition that Brooklyn is a victim of its own success. Nevertheless, the article certainly mulls over, without providing much explanation, the issues of what has been gained and lost with the arrival of the “Barclays” Center.

The arrival of the “Barclays” Center in Brooklyn hardly represents Brooklyn being a victim of its own success: What it represents is the borough’s failure to fend off a corporatizing grab of its burgeoning local culture.

Elegy For Loss In A Corporatizing Grab

Jay Michaelson writing in the Huffington Post (An Elegy for Brooklyn, in the Shadow of Barclays, 10/02/2012) did a far better and much more succinct job than the New York Magazine article in weighing the losses that come with the arrival of Barclays. Michaelson, like Jacobson in New York Magazine, tends to see the losses through his own set of personal filters, but he gets it mostly right, particularly with respect to the principles involved. What is being lost is the wealth of a diverse, locally-generated ecosystem, “an experiment in a different kind of urban renewal.” (You may hear echos of Jane Jacobs and NNY’s testimony about HDC’s proposed issuance of more bonds for Ratner.) What is being plunked down by Ratner in exchange is just more of the ubiquity of “the same chain-restaurants and sports bars, the same monotonous culture” that you witness in other corporately fostered environments.

Michaelson gets perhaps only one thing wrong. He says: “Today, the Slug is the tip of a pincer of Manhattanization.” (He refers to the “Barclays” Center as “the slug” and to living near it as living in “shadows of the Slug.”) I think “Manhattanization” isn’t the operative concept because I have always doubted that the more politically powerful Manhattanites would have allowed anything like Ratner’s governmentally assisted acquisition of a 50+ acre monopoly or Ratner’s other various oppressions of the surrounding neighborhood. Manhattanites defeated Bloomberg’s wishes to place the Jets Stadium on Manhattan’s West Side. I have also always doubted that Manhattanites would have tolerated the extreme and sudden jump proposed to take the Ratner-controlled property to unprecedented density. I may need to reassess that last doubt now given the Bloomberg administration recently unveiled plans to almost double (starting in 2017) the density of Manhattan’s already very dense Midtown business district surrounding Grand Central, from 39th Street to 57th Street on the East Side.

Corporatizing Takeover Comes Subsidized

On another key point Michaelson is absolutely right: That the corporatizing takover of Brooklyn is not the result of natural economic forces. It is the result of subsidies snuffing out those forces. “Real capitalism was already here, in the form of bodegas and boutiques,” he tells us while reminding us that the “slug” is “the bastard child” of government subsidies, and:

Real capitalism is about small businesses creating a diverse market ecosystem. Mega-capitalism is about big money squashing all of it like a bug.

Indeed, what we see when looking the “Barclays” Center is the big box store version of entertainment. Similar to the way that big box stores are so often able to strike special deals with government for tax exemption, giving them extra edge over mom-and-pop stores, the “Barclays” Center doesn’t pay taxes. It is also additionally supported by other subsidies as well.

If you go to see Babs Streisand* playing the “Barclays” Center, Bruce Ratner and Mikhail Prokhorov as its owners need not set aside even one penny of your ticket price to pay for taxes. But if you want to open an intimate music venue across the street that hosts local musicians, including possibly young next-generation Streisands, you are going to be at a competitive disadvantage: You’ll have to pay taxes and you won’t have the rest of the “Barclays” package of subsidies helping you. In fact, you will have to pay extra taxes to pick up the tab for the those subsidies and the taxes the “Barclays” Center isn’t paying.

(*Note: The community has sent an open letter Barbra Streisand and Leonard Cohen respecting their scheduled performances at the arena, holding open the possibility that “as artists with a history of philanthropy, social justice and civil liberty advocacy, and protest lyrics” Streisand’s and Cohen’s acceptance of performance dates at the arena might mean that they had yet “to learn about the history behind the venue” with which they were associating themselves.” The artists have yet to respond to the community’s letter.)

The kind of corporatizing agglomeration of wealth into a privileged tax-exempt fortress you see at the “Barclays” Center is similar to what was done with the building of the new Yankee Stadium: The new Yankee Stadium has fewer seats than the old (so the ticket prices could be raised), but its overall footprint is actually bigger than the previous stadium so that, for the benefit of a corporatizing few, it could include within its tax-exempt privileged walls the business activities once plied by others outside those walls who paid taxes.

Could the boundaries between whom government is choosing to benefit and whom government works against be any clearer?

Let’s assume that there will be about 225 events a year at the “Barclays” Center (at least that’s a number its prospective bondholders relied on), and then let’s assume that typical events might be filled with about 16,000 (that's just a tad below the attendance figures for the opening Jay-Z concerts.) That would give us 3.6 million ticket sales a year. The actual number of performances might be more or might be fewer and overall attendance could be different but this is a good ballpark figure for our purposes.

Now let's think what that translates into in terms of per ticket subsidy. Let's start with the real estate taxes that are not being paid. The way the deal works is that that real estate taxes being side-stepped are equal to the debt service on the tax-exempt bonds issued for the arena (essentially mortgage debt financing a large portion of the building). $511 million of tax-exempt bonds were issued by the state for Ratner and Prokhorov at an overall interest rate of 6.48%.

The Official Statement describes multiple, for the layman complicated kinds of bonds. The cash flow going to debt service (available here) jumps around (starting out low just after the construction period, ratcheting up and then back down again) but, leaving out the construction period, a simple debt calculation for thirty-five years over which the bonds amortize translates to an annual figure for unpaid taxes of $36,962,520.00, or $10.27 per ticket.

But that's just the start because there are other subsidy costs that have to be added in as part of the additional cost of each ticket. There is: 1.) the annual city, state and federal subsidy to lower the interest rate on the bonds, 2.) the allocable portion of the MTA write-down on the land, 3.) the city’s donation of the closed down part of Fifth Avenue and the allocable portion of the closed section of Pacific Street, 4.) the allocable portion of the $279 million in cash from the city and state, 5.) the abuse of eminent domain to obtain land at lower cost, 6.) the entire package of preferential density for other buildings on the block and exemptions from rules that normally apply, like not building arenas within 200 feet of residential buildings.

Probably, because only the arena and not much more is opening for a period of time, allocable portions assigned to the arena should be boosted.

That’s not to mention extra police, subway trains, and other city services needed to support the arena.

The city, state and federal subsidy to lower the interest rate on the bonds comes to about $95 million in subsidy. But over the 38 year term of the bonds that only about $2.5 million a year. Sales tax is also being avoided. It could all be allocated to the construction years but maybe it is better to allocate to the first ten years at about $1.75 million a year.

The MTA write-down on the land value and the city gift of street streets probably ought to be valued at about $72.61 million all together. (More should probably be added onto this because the developer is also getting a free option on more land with it but we'll ignore that.) If that total is taken over the next ten years that's $7.261 million a year.

If, given the arena's immediate delivery with most else about the mega-project in abeyance we might allocate 40% of the city and state cash to the arena and decide that it should be allocated to the next ten years? That would be another $11.6 million a year.

At this point all these additional amounts come to another $22.671 million in subsidy a year. So at this point the per ticket subsidy is running at about $16.56. The value of the rest of the subsidies like eminent domain acquisition of land, density and all sorts of exemptions is harder to calculate. I suggest that for conceptual purposes which just round it out to about $20.00 a ticket, which is probably low.

$20.00? That could have covered an entire night out at Freddy's the neighborhood bar with music performances that was evicted by eminent domain's threat and left money over to spend elsewhere in the community. (Apparently once referred to as the “borough of Brooklyn’s most vital cultural hub”- It's in the video in the link.)

Think what would happen if, instead of subsidizing 3.6 million "Barclays" tickets the same amount of money were spent to subsidize 3.6 million trips to local tax-paying cabarets and restaurants?

A ticket to see Barbra Streisand isn’t, by everyone’s standards, cheap: $104 to $716.65. And that’s the nominal cost of the tickets not yet including the addition of these subsidies. It also doesn’t include added fees charged beyond the face amount of the ticket.

But if the tickets aren’t cheap that’s, in part because, Ratner and Prokhorov didn’t have to agree to lower what they charge for tickets in exchange for subsides. They can charge what the market will bear. They are not a nonprofit and since they aren't they are allowed to make as much profit as they can and all that money can go back to Ratner's Cleveland or Prokhorov's Russia, or wherever. There is no no one, and no practical expedience that requires them to recycle those monies through the community.

Their ability to charge the going rate also explains why the cost of a bottle of water in the arena can be $4.50. You may especially want that bottle of water before you leave if you show up for a Jay-Z concert at its scheduled starting time 8:00 PM not knowing you should really expect him to start an hour and a half after that. (At Freddy's you could get a glass of water for free.)

Tickets for Jay-Z concerts were in two categories. Tickets that were supposed to be market rate tickets were reportedly running between a low average price of $452 to a high average price of $530. Floor seats for the much-hyped show were over $2,000. Then there were 7000 tickets nominally being offered at the crowd-friendly price of $29.50 ($37.20 with fees) that were actually reaching the secondary market at $195.23.

Whatever the nominal ticket prices you just have to remember that, with the subsidies, the amounts that Ratner and Prokhorov get to pocket and take back with them to Cleveland, Russia, or wherever, are going to be greater by that amount. If you go with the cheap $104 Barbra Streisand ticket its real price (before fees) is $124. The $29.50 Jay-Z concert ticket is $49.50 or $57.50 with fees. But if you are spending the better part of a grand for a ticket maybe you consider these amounts other citizen taxpayers are shouldering for your ticket trifling.

But now here is something else to consider: If the number of performances go down or if attendance figures wind up being lower than the per subsidy amount allocable to each seat-filling ticket goes up. Something else happens too: Ratner and Prokhorov may find themselves wanting to raise ticket prices. If they do, it could turn into a vicious cycle: higher prices reducing attendance.

Glittering Treasure Chest Of Value

There are certainly those who look upon the “Barclays” Center and see impressive value there; They crow about the spectacle of its glitter. A frequently used metaphor for a glittering and startling concentration of wealth piled up in one place is that of the treasure chest. Some people who make proclamations about what Brooklyn has gained with the “Barclays” Center, people like Ratner, Prokhorov, Bloomberg, Markowitz, and Charlie Rose gloat over the arena's glitter. I see what they are gloating over as representing much the same thing as a treasure chest. Like a treasure chest, the “Barclays” Center undeniably gleams with heaps of accumulated value. But the “Barclays” Center, like those fictional fairytale treasure chests, comes by its impressive heaped up gleam because it is an accumulation of pirate booty, illegally seized and hoarded.

All that piled-up wealth represents the brooches and necklaces that are not out in the community being worn as adorning ornament by the ladies, it’s the candlesticks and silver that are not festooning local dinner tables, it represents the gold that is not circulating through and enriching the general commerce of the community. It also represents the cost of the fear, violence and suffering when that wealth was wrested from its original owners at sword point or with the discharge of blunderbusses.

Piratical Plunder Attracts

The 1991 movie “Hook,” a Spielberg revisitation of the “Peter Pan” story, is flawed in many ways but it tries so hard in an overblown way to cram so much in that it inevitably succeeds in various interesting incidentals (like Glenn Close in an incognito cameo as a male pirate, long before her gender-switching role as Albert Nobbs). The conceit is that Peter Pan has grown up and that now, as Peter Banning, he has forgotten who he was. There is a metaphor that I thought ill-handled and clumsily maudlin but that stuck with me nevertheless: The adult Banning (Robin Williams) is now in the real estate and financial industry with a investment banking private equity firm, something like Bain Capital, that specializes in taking over vulnerable firms. As Banning’s son relates, Banning “blows them out of the water” upon encountering “any resistance.” The fairytale’s Wendy, now aged into a grandmother (Maggie Smith), quiets upon hearing this. Fixing Banning in her gaze says, “So, Peter, you’ve become a pirate!”

The metaphor is not seriously developed or capitalized upon in the film, but it gets emphasized in a brief ensuing moment as Banning shivers when he looks at pirate imagery embedded in the nursery’s wallpaper. The point is that boys who once gloried in championing justice, can easily forget their origins, growing up into men seduced by the attractions of piratical plunder. We may see Ratner’s professionals as being so enticed to the other side of justice . . . and perhaps even Ratner himself.

The thing to remember is that the revelry around the glint and gleam of the “Barclays” Center is, at its core, a celebration of an immense and unforgivable transfer of wealth from the local community to a force of marauders.

Glitter of Golden Eggs?

Jane Jacobs, the great urbanist observer and thinker who wrote “The Death and Life of Great American Cities,” writes in that book (p. 246) about a sort of `killing the goose that laid the golden egg’ concern, that the benefits of a diverse economy can be killed off by a rush of businesses coming in to take advantage of an “enviable location” so that the “enviable location” thereby ceases to exist.

Days ago Charlie Rose did what amounts to his secondinfomercial for Bruce Ratner to promote the “Barclays” Center. (In it, he jokes with Ratner about `manipulating politicians’ and also jokes with Russian Oligarch Mikhail Prokhorov about free speech in Russia.) Characterizing Ratner to his (trusting?) PBS audience as a “worrier--a soft-spoken worrier,” Rose served up to Ratner a succession of perfect Tee-ups for all sorts of Ratner self-promotion: “What's the biggest misconception about you, that you would like people to know is simply not true?”

Rose, keying off the sort of Jane Jacobs `killing the golden goose’ concern I just mentioned told Ratner that he assumed that Ratner, in building the “Barclays” Center, wanted “to make sure that none of this causes Brooklyn to lose Brooklyn, to be what it is. . . I mean, if you have the definition of something that has soul, you want to make sure that nothing gets in the way of that soul.”

Ratner (who later flatters Rose in the interview by telling him he asks “very good questions”) naturally affirms the point.

Ratner also affirms moments later when Rose suggests that Ratner wants to honor, or as Ratner says, “continue the soul of Brooklyn” so that, in Rose’s words “it doesn't look like Brooklyn has been bought.” (“Stolen” is actually the image that comes to mind.)

During the interview, Rose flourished and had the Mark Jacobson New York Magazine cover story displayed on the screen. Rose’s “questions” played off the aforementioned motif, interpreting this as a moment when no one wants Brooklyn to be “victim of its own success.”

But none of this is true. Ratner’s putting up the “Barclays” Center is not an example of Ratner being attracted to the golden goose of Brooklyn’s soul. More likely he viewed the sports arena as an extension of his pennant-decorated shopping malls across the street and as a way of wiping out the competing development springing up just streets away (streets that he know owns thanks to the government and eminent domain abuse). Most of Brooklyn’s recognized success has happened since Ratner announced his plans in 2003; this success happened in spite of Ratner's plans, and it thrives better when at a safe remove from Ratner. But now that the Ratner arena unveiling comes in the middle of the ongoing Brooklyn success story with which everyone is so familiar he can hardly afford to be seen as being at odds with it. But he is at odds with it!

Subsidies Falsify Cost Equations And Warp And Extinguish Development

Though things absolutely stand to be lost, this time it isn’t exactly about the care and preservation of golden geese. It is't about Ratner valuing the golden eggs that are being laid. The antagonism between Brooklyn and what Ratner is creating is more direct. The Jane Jacobs caution that more aptly applies to the “Barclays” arena is expressed in her 2000 book, “The Nature of Economies,” in which she warns that:

Immediately after, as further explanation of the pitfalls of falsified costs, Jacobs cites the post-Soviet Russia in which Rartner’s partner Mikhail Prokhorov made his fortune:

Monopolies, established by cronyism and strong-arm methods, along with pervasive extortion and corruption, falsify actual cost anyhow; racketeering enterprises prefer eliminating competitors to competing with them on prices, quality and services.

Let us then, before ever entering the “Barclays” Center, keep our wits about us. Let us remind ourselves that the true cost of a ticket to enter is much greater than the dollar amount that appears on one’s ticket. Part of that cost is what Michaelson in his Huffington Post column reminds us is what may vanish, unable to withstand Ratner’s “onslaught”:

. . . Within a mile of Barclays Center, there are over 100 restaurants, mostly local and independent, many of them serving local and organic food in literally every cuisine of the world (there's a fantastic French Caribbean place right in the shadow of the Slug). There are co-ops and quirky thrift shops, Pentecostal churches, brownstones and city housing; there are lots of bicycles on the street.

1 comment:

"...if attendance figures wind up being lower than the per subsidy amount.... Ratner and Prokhorov may find themselves wanting to raise ticket prices.... it could turn into a vicious cycle: higher prices reducing attendance."

^^This is exactly what's going on at Yankee Stadium. For most games, the face value ticket price is actually higher than the market price (Stubhub sells the same seats for much less). Its amazing how many empty seats there are at Yankee Stadium on most nights. In fact, its amazing to see how many empty seats there have been during the current playoff series vs the Orioles. The stadium looks about 90% full. That sounds great, but at the old Yankee Stadium (where ticket prices were much cheaper) every seat was filled during the playoffs. In fact, you were lucky to even get to the box office.

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NOTICING NEW YORK & NATIONAL NOTICE are both independent entities managed by Michael D. D. White of Hop-Skip Enterprises. Michael D. D. White is an attorney, urban planner and former government public finance and development official. *** Noticing New York covers New York development and associated politics. National Notice covers national policy and economic issues *** Contact: MichaelDDWhite(at)gmail.com